Coalition to slash car industry funding

Anger continues to build over Holden’s decision yesterday to cut 500 jobs from its South Australian and Victorian factories, and could see the industry receive less in government funding.

Managing director Mike Devereaux blamed the rampant Australian dollar for crippling the industry, but sales of locally produced Holdens have fallen by more than a third since the 1990s, as consumers switch to smaller passenger cars and SUVs.

South Australian Premier Jay Wetherill said the job cuts breached the agreement Holden has with the state, which contributed $50 million to protect jobs. Coalition spokeswoman Sophie Mirabella said that Holden was expected to receive $275 million in state and federal subsidies in return for investing $1 billion in the new Commodore, but questioned what the government gets in return.

The opposition has a long-standing agreement to cut subsidies by $500 million back to Howard government levels, which would mean $1 billion up to 2015. The Federal government suggest that 250,000 people were employed directly or indirectly in the sector which made it an integral part of the Australian economy, and was the reason why it was spending $5.4 billion up to 2020 to support it.

The job cuts show the futility of governments trying to prop up an unprofitable industry, and subsidies only prolong the pain, while wasting taxpayers’ money that could be better spent on more productive industries.

The situation is similar to the steel industry in Australia. Both BlueScope Steel (ASX: BSL) and Arrium Limited (ASX: ARI) ex- OneSteel have received millions of dollar of handouts from the government. There’s still no certainty that Australia’s steel industry can remain competitive, as it is also hurt by the high Australian dollar and subsequent inability to compete against imported products.

Foolish takeaway

Former industry minister Kim Carr defended the government subsidies saying they were modest compared to Germany and the US. That ignores the point that the money could be better spent on re-training auto workers, and encouraging the car manufacturers to stand on their own two feet, by cutting costs and actually producing vehicles that people want to buy.

Other sectors, like the building, and media industries as well as Qantas Airways Limited (ASX: QAN), face similar issues but receive little or no subsidies. Why should Holden continue to receive subsidies when it’s going to continue cutting jobs?

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.